For “Wrongful Arrest” of a Vessel, Bad Faith, and Malice or Gross Negligence Must Be Proven by the Shipowner

April 23, 2014

To recover damages for “wrongful arrest” of a vessel under maritime law, the Owner must prove the arrest was made in “bad faith, malice or gross negligence.” This is similar to proving “malicious prosecution” under common law.

However, advice of competent counsel, honestly sought and acted upon in good faith, can be a complete defense to an action for malicious prosecution under common law. Under maritime law, an honest belief may also be enough.

However, problems may arise in maritime law where a charterparty requires the charterer to provide bunkers or other supplies or services to the vessel.  In a recent case, the charterer ordered bunkers from a supplier in Korea to be delivered to the vessel at a Panama port.  The order provided that the seller’s usual terms would not apply to the order. The next day, the seller emailed a confirmation of the order subject to the seller’s usual terms and conditions, which provided that the fuel was being sold “on the financial credit of the vessel” and the buyers promise to pay. The terms also provided that the seller would have a right to assert a maritime lien on the vessel if the buyer failed to pay.

At Panama, prior to delivery of the fuel, the Master of the vessel allegedly presented the bunker supplier with a letter indicating that the supplier did not have a maritime lien on the vessel because the charter party prohibited such liens. The seller supplied $614,412.31 worth of fuel to the vessel.

Two months later, the bill still had not been paid, and the supplier warned the charterer and the vessel owner that if payment was not received immediately, it would seek to arrest the vessel on its next arrival at Longview, Washington. Counsel for the vessel replied, pointing out the “no lien” clause in the letter presented by the Master, prior to delivery. The Owner said the charterer was responsible for payment and any arrest of the vessel would be “wrongful.”

The supplier obtained an arrest warrant, and it filed a complaint in rem against the vessel for the amount owed.  The Owner filed a counterclaim for wrongful arrest, alleging that the supplier wrongfully secured the order of arrest “with full knowledge that it did not have a maritime lien.”

The supplier sought a dismissal of the counterclaim, arguing that its actions were not taken “in bad faith, with malice, or with gross negligence, and it claimed it had no knowledge of the letter of the Master until counsel for the Owner provided a copy.

The Court held that the supplier did not act in bad faith. “It is not bad faith to seek to procure payment through a maritime lien it honestly believes it possesses.” Cremois Corp. v. M.V. DARYA VISHOV, in rem (W.D., Wash., Dec. 5, 2013).